WORKERS' COMPENSATION FEE SCHEDULES, MAXIMUM ALLOWABLE FEES, AND COMPARATIVE REIMBURSEMENTS DEAN SUGANO Researcher Report No. 5, 2007 Legislative Reference Bureau State Capitol Honolulu, Hawaii 96813 http://www.hawaii.gov/lrb
This report has been cataloged as follows: Sugano, Dean Workers' compensation fee schedules, maximum allowable fees, and comparative reimbursements. Honolulu, HI: Legislative Reference Bureau, December 2007. 1. Workers' compensation Law and legislation United States States. KFH421.5.L35 A25 07-5
FOREWORD This report was written in response to Senate Concurrent Resolution No. 77, H.D. 1, adopted by the Legislature during the Regular Session of 2006. The concurrent resolution requests the Bureau to study reimbursements under the workers' compensation fee schedules. The Bureau wishes to acknowledge the invaluable assistance and cooperation of the medical doctors and osteopathic physicians who responded to the Bureau's reimbursement survey, the Disability Compensation Division of the Department of Labor and Industrial Relations, the First Insurance Company of Hawaii, Ltd., the Hawaii Employers' Mutual Insurance Company, IMS, a Solera Company, the Hawaii Medical Association, and the San Francisco office of the Centers for Medicare and Medicaid Services. December 2007 Ken H. Takayama Acting Director iii
TABLE OF CONTENTS Page FOREWORD... FACT SHEET... iii viii 1. INTRODUCTION... 1 The Request of the Resolution... 1 The Scope of the Study... 2 The Layout of the Report... 2 2. FEE SCHEDULE PRIMER... 4 Maximum Allowable Fee = Relative Value Units Conversion Factor... 4 The Medicare Resource-Based Relative Value Scale in Workers' Compensation... 6 The Medicare Resource-Based Relative Value Scale, Geographically Adjusted... 7 The Medicare Payment Formula in Workers' Compensation... 9 The General Medicare Payment Formula... 9 The Actual Medicare Payment Formula... 10 The Actual Medicare Payment Formula, for Use in Workers' Compensation... 12 The Relative Value Units for Practice Expense Under the Medicare Resource-Based Relative Value Scale... 13 The Participating Physician's Rate of Payment Under Medicare... 14 3. FEE SCHEDULES AND REIMBURSEMENT METHODS OF THE SEVERAL STATES... 15 States Without Fee Schedules... 16 States with Fee Schedules Whose Bases are Not Expressly Specified... 17 States with Fee Schedules Based on Charges... 18 States with Fee Schedules Whose Source of Relative Values is the Ingenix Publication, Relative Values for Physicians... 20 States with Fee Schedules Whose Source of Relative Values is the Medicare Resource-Based Relative Value Scale... 20 States with Fee Schedules Whose Payment Formula is a Percentage of the Medicare Payment Formula... 22 The Table of Reimbursement Methodology and Fee Schedule Adjustments... 24 iv
Page 4. ADJUSTING FEE SCHEDULES AMONG THE SEVERAL STATES... 25 States that Lack Statutes or Administrative Rules Regarding the Adjusting of Their Fee Schedules... 26 States with Fee Schedules Subject to Discretionary Adjusting... 26 States with Fee Schedules Subject to Mandatory Adjusting, but Without a Specified Basis for Adjusting... 26 States with Fee Schedules Subject to Mandatory Adjusting, with a Specified Basis for Adjusting... 28 The Table of Reimbursement Methodology and Fee Schedule Adjustments... 30 5. MAXIMUM ALLOWABLE FEES AMONG THE SEVERAL STATES FOR SERVICES RENDERED IN A NON- FACILITY SETTING... 32 The Five CPT Codes for Comparison... 32 Main Findings... 33 Patterns or Trends between Fee Schedules and Fee Levels... 34 The Table... 36 6. HAWAII'S TWO WORKERS' COMPENSATION FEE SCHEDULES... 44 The Two Fee Schedules Under Hawaii's Workers' Compensation Law... 44 The Legislative Intent of Act 234 with Regards to the Fee Schedules... 45 Determining the Governing Fee Schedule for a Procedure or Service... 46 The Charge-Based Supplemental Fee Schedule... 47 Calculating the Maximum Allowable Fee for a Procedure or Service Under the Supplemental Fee Schedule... 50 The Resource-Based Medicare Fee Schedule... 50 Calculating the Maximum Allowable Fee for a Procedure or Service Under the 110% Medicare Fee Schedule... 51 The Next Chapter: A Preview... 52 7. MAXIMUM ALLOWABLE FEES AND COMPARATIVE REIMBURSEMENTS IN HAWAII FOR SERVICES RENDERED IN A NON-FACILITY SETTING... 53 The Survey... 54 The Survey Respondents... 55 The CPT Codes Reported, Including the Five Most Frequently Reported... 55 The Supplemental Fee Schedule as the Primary Fee Schedule... 57 v
Page The Shift from 110 Per Cent Medicare Fee Schedule to the Supplemental Fee Schedule as the Primary Fee Schedule... 58 Maximum Allowable Fees Under the Fee Schedules... 59 Average Actual Reimbursements Under the Fee Schedules... 60 Comparisons of Reimbursements from Workers' Compensation with Reimbursements Under Employee Group Health Plans... 60 Comparisons of Reimbursements from Workers' Compensation with Reimbursements from the Uninsured Patients... 61 The Legislative Intent of Act 234 with Regard to the Governing Fee Schedule and Actual Reimbursement Figures from Workers' Compensation and Employee Group Health Care plans... 61 Back to S.C.R. No. 77, H.D. 1 (2007)... 62 The Table of Data Relating to the Provider Reimbursement Survey... 63 8. COMMENTS FROM THE DOCTORS AND PHYSICIANS... 67 Comments from the Doctors and Physicians... 67 Comments on the Fee Schedule and Workers' Compensation... 67 A Note on CPT Code 99455... 68 Comments on Payments by Carriers... 68 The Individual Comments of the Doctors and Physicians... 71 9. SUMMARY... 75 Recommendation... 79 Appendices A. Senate Concurrent Resolution No. 77, H.D. 1, Twenty-third Legislature, Regular Session of 2006... 81 B. States' Workers' Compensation Medical Fee Reimbursement Methods: Language from Statutes, Administrative Rules, and Fee Schedules... 85 C. Survey Of Reimbursement Under The Workers' Compensation Medical Fee Schedules... 100 D. References... 102 Tables 4-1 Reimbursement Methodology and Fee Schedule Adjustments... 30 5-1 Maximum Allowable Fees of Five Most Frequently Reported Codes... 33 vi
Page 5-2 Nationwide Non-Facility Maximum Allowable Fees (in Dollars) in 2007 for CPT Codes 99203, 99204, 99212, 99213, and 99214... 37 7-1 Survey Respondents... 55 7-2 Grouping of Codes and Report Frequency... 56 7-3 The Five Most Frequently Reported Codes... 56 7-4 The Primary Fee Schedule Over the Years with Regard to the Maximum Allowable Fees for the CPT Codes Reported in Our Survey... 59 7-5 Data Relating to the Provider Reimbursement Survey... 65 8-1 The Fee Schedule and Workers' Compensation... 67 8-2 The Fee Schedule and Workers' Compensation... 68 vii
FACT SHEET Q. How many fee schedules are there in Hawaii for workers' compensation? A. Two. One is the 110% Medicare fee schedule, which sets maximum charges at 110% of the Medicare payment amounts applicable to Hawaii. The other is the supplemental fee schedule, which by law sets maximum charges at the "prevalent charge for fees for services actually received by providers of health care services to cover charges for that treatment, accommodation, product, or service." Q. Do they work in conjunction with each other? A. Yes, charges shall not exceed the greater of the prevalent charge set under the supplemental fee schedule or 110% of the charges allowed under Medicare. Q. How does that work out in practice? A. If maximum allowable fees for a medical service are listed under both the supplemental fee schedule and the Medicare fee schedule, then the maximum allowable fee is determined by the supplemental fee schedule. If maximum allowable fees for a medical service are listed only under the Medicare fee schedule, then the maximum allowable fee is determined by the 110% Medicare fee schedule. If maximum allowable fees for a medical service are not listed under either schedule, then the maximum allowable fee is the provider's lowest fee received for that medical service when rendered to private patients. Medical services are identified by their Current Procedural Terminology, or CPT, codes. Q. Which schedule is the primary one? A. The supplemental schedule governs the maximum allowable fees of over a majority of the CPT codes that were reported in our survey of most frequently used codes. Q. How high are the maximum allowable fees under the supplemental fee schedule? A. For the CPT codes reported in the survey, the supplemental schedule sets maximum allowable fees at about 136% of Medicare amounts. Q. What are the most frequently used services in workers' compensation? A. Based upon our survey, the evaluation and management services were the most frequently reported services. Specifically, the five most frequently reported CPT codes in descending order were 99213 (office visit; established patient; medical decision making is of low to moderate severity), 99214 (office visit; established patient; medical decision making is of moderate to high severity), 99203 (office visit; new patient; medical viii
decision making is of moderate severity), 99212 (office visit; established patient; medical decision making is self-limited or minor), and 99204 (office visit; new patient; medical decision making is of moderate to high severity). Q. How do reimbursement levels in workers' compensation compare to reimbursement levels in employer group health plans? A. Based upon our survey, actual reimbursements under the fee schedules are about 99% of the reimbursements received from both carriers and patients under employee group health plans. Q. How do Hawaii's maximum allowable fee levels compare to the maximum allowable fee levels of other states? A. For the five most frequently reported CPT codes in the survey, Hawaii's maximum allowable fees are about 102% of the average maximum fee levels of the thirty-two states whose fee schedules we reviewed. Q. Do all states have fee schedules? A. No, some do not, but most do. Some fee schedules are based on charges, expressed as the prevailing charge or the usual and customary charge. Other fee schedules are based on the Medicare fee schedule or upon the Medicare resource-based relative value units. Still others are based upon the relative value units of the Ingenix publication Relative Values for Physicians. Q. How do states update their fee schedules? A. Where specified, the schedules are authorized or required to be adjusted on a periodic basis (although some states do not require adjustment). Specified periods of adjustment are annually, semi-annually, biennially, triennially, quarterly, periodically, from time to time, as necessary, and as needed. Sometimes, the bases for the adjustments are specified. If the basis is specified, the basis is usually the consumer price index, in particular, the consumer price index--urban. Another basis frequently used is the state average weekly wage. Other bases used include the Medicare economic index, the yearover-year inflation rate, changes in levels of reimbursement, and prevalent charges. ix
Chapter 1 INTRODUCTION The Request of the Resolution Senate Concurrent Resolution No. 77, H.D. 1, was adopted by the Legislature during the regular session of 2006. It requests the Legislative Reference Bureau to conduct two separate studies relating to reimbursements to health care providers. (See Appendix A for a copy of the resolution.) The first study relates to reimbursements under Medicaid and QUEST programs and was completed and published as Medicaid and Quest Provider Payment and Reimbursement Rates, Report No. 6, 2006. The second study is the present report, and it relates to reimbursements under workers' compensation. The request for the second study mirrors that for the first study, but with word substitutions such as "workers' compensation" for "Medicaid and QUEST." For this second study, the resolution requests the Bureau to conduct a study of recommended procedures that will ensure that state-funded health care payments adequately reimburse providers who provide services for injured employees under workers' compensation insurance for the actual cost of health care services. Specifically, the resolution requests a study of the following issues: (1) Processes implemented by other jurisdictions or as recommended by experts that try to ensure that state-funded health care payments to worker compensation providers adequately reimburse them for their actual costs; (2) A comparison of rates for the ten most frequently used services in worker compensation services, actual costs of those services, and the amount reimbursed to the provider; (3) A method of updating payments and reimbursements to health care providers every two years to keep pace with inflation; and (4) A survey of nationwide benchmarks to see how Hawaii compares to other jurisdictions regarding provider payments and reimbursements for at least the ten most frequently used worker compensation health procedures. The request for the study is evidently prompted by concerns over inadequate levels of reimbursement, given the State's the authority to increase those levels. The Resolution mentions on the one hand that "providers are receiving insufficient payments for health care from government payers, private insurance payers, and patients who do not have insurance." On the other hand, the Resolution asserts: "the State... controls certain types of payments for health care made to providers," and "it is in the public interest to ensure that health care payments... controlled by the State are sufficient to cover the actual costs of care." 1
WORKERS' COMPENSATION FEE SCHEDULES, MAXIMUM ALLOWABLE FEES, AND COMPARATIVE REIMBURSEMENTS The Scope of the Study At the outset, we note that the language of the request for the workers' compensation study is modeled exactly upon the language of the request for the Medicaid study, possibly creating presumptions about workers' compensation that are not valid. Specifically, health care payments to workers' compensation providers, unlike health care payments to Medicaid providers, are generally not state-funded. The State, like any other employer, pays health care providers for services rendered to its own state employees who require medical care upon sustaining a compensable work injury. Similarly, the State, like any other employer, is generally not under any obligation to pay providers for medical services rendered to nonemployees who sustain a compensable work injury. The Layout of the Report Our findings are set forth in the following chapters, as follows: Chapter two is a brief primer on fee schedule concepts and formulas; Chapter three addresses the first issue of the Resolution. This chapter summarizes the reimbursement bases of the fee schedules of the several states. It also discusses the reimbursement methodologies of states without fee schedules; Chapter four addresses the third issue of the Resolution. It discusses the updating of those fee schedules among the several states; Chapter five addresses the fourth issue of the Resolution. It compares the maximum allowable fees for five different Current Procedural Terminology ("CPT") codes under the fee schedules of Hawaii and other states. The five codes are the codes that were the most frequently reported in the Bureau's survey of medical doctors and osteopathic physicians discussed in chapter six; Chapter six discusses the two workers' compensation fee schedules used in Hawaii. One schedule is the Medicare fee schedule raised one hundred and ten per cent. The other schedule is the supplemental fee schedule; Chapter seven addresses the second issue of the Resolution. This chapter is based upon the results of our survey to medical doctors and osteopathic physicians regarding reimbursements and covers all the CPT codes that were reported by them. This chapter compares maximum allowable fees and reimbursements under the workers' compensation fee schedules. It also compares reimbursements under the workers' compensation fee schedules with reimbursements from other payment sources, specifically, employee group health plans and uninsured patients; 2
INTRODUCTION Chapter eight concludes the results of the survey to medical doctors and osteopathic physicians. This chapter relates: the comments by the medical doctors and osteopathic physicians on workers' compensation reimbursement and carrier reimbursement practices; the carriers' responses to the comments of the medical doctors and osteopathic physicians; and the responses of the Department of Labor and Industrial Relations to the comments of the medical doctors and osteopathic physicians; and Chapter nine presents a summary of salient points and conclusions. 3
Chapter 2 FEE SCHEDULE PRIMER The following brief explanation reflects our own understanding of fee schedules, distilled from a reading of the statues, administrative rules, and fee schedules discussed in more detail in the subsequent chapters. Maximum Allowable Fee = Relative Value Units Conversion Factor A workers' compensation medical fee schedule assigns a maximum allowable fee to a specific medical service. For services performed by individual physicians, the medical service is generally identified by a unique five-digit Current Procedural Terminology code, or CPT code. The CPT is a coding system of diagnostic procedures and services performed by physicians and is developed and copyrighted by the American Medical Association. 1 The maximum allowable fee assigned to a CPT code is typically the product of two factors, the relative value units and a conversion factor. The basic formula for the maximum allowable fee under a fee schedule for a particular service is as follows: Maximum allowable fee = Relative value units Conversion factor = RVU CF. Expressed verbally: The maximum allowable fee is the product of relative value units multiplied by a conversion factor. Relative value units are expressed in "units" of stand alone numbers, typically up to two decimal places. They are "relative" in the sense that they express the value of a particular physician service in relation to, or relative to, other physician services. Their "value" may pertain to charges (such as in Kentucky, Ohio, and South Carolina) or to the resources involved in performing the particular service (as in the states that use the Medicare Resource-Based Relative Value Scale). Relative value units appear to be an "intra" factor, since they tend to weigh physician services against each other. 1. Current Procedural Terminology: cpt 2002, Standard Edition, American Medical Association, page iii, Foreword, page x, Introduction. 4
FEE SCHEDULE PRIMER One important source of ready-made relative value units is the Medicare Resource-Based Relative Value Scale, developed by the federal Centers for Medicare and Medicaid Services. These relative value units are based upon the "resources" expended by a physician in furnishing a service. These resources are comprised of the components of physician work, practice expense, and malpractice expense. The physician work component is "the portion of resources used in furnishing the service that reflects physician time and intensity in furnishing the service." The practice expense component is "the portion of the resources used in furnishing the service that reflects the general categories of expenses (such as office rent and wages of personnel, but excluding malpractice expenses) comprising practice expenses." The malpractice expense component is "the portion of the resources used in furnishing the service that reflects malpractice expenses in furnishing the service." 2 (Formerly, the national relative value units of Medicare were based upon reasonable charges. 3 ) Another source of ready-made relative value units is the Ingenix publication, Relative Values for Physicians. These relative value units are reportedly based upon five criteria: time, skill, severity of illness, the risk to the patient, and the risk to the physician. 4 Under their methodology, the authors of the publication take a random sample of physicians across the country and ask the physicians to use the five criteria in evaluating those medical procedures they frequently perform or feel qualified to evaluate. The individual criteria are not weighted, as the authors believe that weighted criteria will distort their survey findings. 5 The authors of the Ingenix publication state that the most significant difference between the relative values in Relative Values for Physicians and that of the Medicare system is that, in Relative Values for Physicians, the relative values for one section of the CPT coding system are not set in relation to another section. As an example, they point out that relative values for surgical codes are not determined in relation to office visits. The authors further assert that their system of relative values, unlike those of the Medicare system, is free from federal budgetary influence. They note that critics of the Medicare system believe that financial pressure on the system has resulted in inequitable payments to providers. 6 There also may be other sources of relative value units besides the Medicare Resource- Based Relative Value Scale or the Ingenix publication, Relative Values for Physicians, perhaps among states that do not expressly identify their source of relative value units as being one or the other. Finally, the conversion factor is expressed in units of dollars. It converts the relative value units into a maximum allowable fee amount. The conversion factor may also serve to 2. 42 United States Code 1395w-4 (c). 3. 71 Federal Register No. 231 (December 1, 2006), p. 69627-69628. Historically, the Medicare national relative value units were once based upon reasonable charges. Beginning in 1992, the relative value units for physician work became resource-based, while the relative value units for practice expense and for malpractice expenses remained based upon average allowable charges. In 2002, the relative value units for practice expense became fully resource-based, following a four-year transition period that was initiated in 1999. Beginning in 2000, the relative value units for malpractice expense became resource-based. 4. Relative Values for Physicians, Relative Value Studies, Inc., 2006 edition, Ingenix, at p. 4. 5. Id. 6. Id. at p. 3. 5
WORKERS' COMPENSATION FEE SCHEDULES, MAXIMUM ALLOWABLE FEES, AND COMPARATIVE REIMBURSEMENTS adjust relative values units for inflation. It appears to be an "inter" factor, since it tends to weigh physician services against the surrounding economy. The Medicare Resource-Based Relative Value Scale in Workers' Compensation The Medicare Resource-Based Relative Value Scale is the source of relative value units in the workers' compensation fee schedules of several states. The relative value units for a CPT code is the sum of the Medicare relative value units for physician work, the relative value units for practice expense, and the relative value units for malpractice expense, as follows: The relative value units = The relative value units of the Medicare Resource-Based Relative Value Scale = Medicare relative value units for work + Medicare relative value units for practice expense + Medicare relative value units for malpractice expense = Work RVU + Practice expense RVU + Malpractice RVU. The formula for calculating a maximum allowable fee is just the basic formula, where the relative value units are specifically the relative value units of the Medicare Resource-Based Relative Value Scale and the conversion factor is specifically a conversion factor determined by the individual state. In other words: Maximum allowable fee = Relative value units conversion factor = Relative value units of the Medicare Resource-Based Relative Value Scale state's conversion factor = (Medicare relative value units for work + Medicare relative value units for practice expense + Medicare relative value units for malpractice expense) conversion factor = (work RVU + practice expense RVU + malpractice RVU) CF. Expressed verbally: The maximum allowable fee is the product of the sum of the Medicare relative value units for physician work, the relative value units for practice expense, and the relative value units for malpractice expense multiplied by a conversion factor. The relative value units used by these states for workers' compensation are referred to in the federal Medicare program as the "national" or the "non-adjusted national" relative value units of the Medicare Resource-Based Relative Value Scale. Under the federal Medicare program, 6
FEE SCHEDULE PRIMER these national, non-adjusted relative value units of the Medicare Resource-Based Relative Value Scale are the relative value units that would theoretically be used everywhere in the nation and its territories, if the nation and its territories were a single Medicare locality. The Medicare Resource-Based Relative Value Scale, Geographically Adjusted In contrast to the "national" or "non-adjusted national" relative value units of the Medicare Resource-Based Relative Value Scale are the "geographically adjusted" relative value units of the Medicare Resource-Based Relative Value Scale. At least one state (specifically, Michigan) adopts the geographically adjusted relative value units of the Medicare Resource-Based Relative Value Scale as the source of its relative value units for workers' compensation. Under the Medicare program, the nation and its territories are not comprised of a single Medicare locality. They are instead divided into 89 different Medicare localities. Accordingly, the national, non-adjusted relative value units of the Medicare Resource Based Relative Value Scale are geographically adjusted for each of the 89 different Medicare localities, through the application of the Geographic Practice Cost Indices. The Geographic Practice Cost Indices are made up of three components that correspond to the three components of the relative value units of the Medicare Resource-Based Relative Value Scale. The three geographic practice cost indices reflect the relative costs respectively of physician work, practice expenses, and malpractice insurance in the physician's geographic area of practice compared to the national average costs for each of the relative value units. 7 There is one set of Geographic Practice Cost Indices for each of the 89 different Medicare localities. For each Medicare locality, the relative value units of the Medicare Resource-Based Relative Value Scale for physician work, practice expense, and malpractice are each multiplied by the corresponding component of the Geographic Practice Cost Indices. The geographically adjusted relative value units of the Medicare Resource-Based Relative Value Scale may be expressed as follows: Geographically adjusted relative value units of the Medicare Resource-Based Relative Value Scale = [(Medicare relative value units for physician work geographic practice cost index for physician work) + (Medicare relative value units for practice expense geographic practice cost index for practice expense) + (Medicare relative value units for malpractice expense geographic practice cost index for malpractice expense)] = 7. 71 Federal Register No. 231 (December 1, 2006), p. 69628. 7
WORKERS' COMPENSATION FEE SCHEDULES, MAXIMUM ALLOWABLE FEES, AND COMPARATIVE REIMBURSEMENTS [(work RVU work GPCI) + (practice expense RVU practice expense GPCI) + (malpractice RVU malpractice GPCI)] Expressed verbally: The geographically adjusted relative value units of the Medicare Resource-Based Relative Value Scale are equal to the sum of the products of the national, non-adjusted relative value units of the Medicare Resource-Based Relative Value Scale multiplied by the corresponding Geographic Practice Cost Indices. A numeric relationship exists between the geographically adjusted relative value units of the Medicare Resource-Based Relative Value Scale and the "national" or "non-adjusted national" relative value units of the Medicare Resource-Based Relative Value Scale. Specifically, the geographically adjusted relative value units of the Medicare Resource-Based Relative Value Scale will equal the "national" or "non-adjusted national" relative value units of the Medicare Resource-Based Relative Value Scale if each of the three Geographic Practice Cost Indices is set equal to 1. In other words, by setting each of the three Geographic Practice Cost Indices equal to 1: The geographically adjusted relative value units of the Medicare Resource-Based Relative Value Scale = [(work RVU work GPCI) + (practice expense RVU practice expense GPCI) + (malpractice RVU malpractice GPCI)] = [(work RVU 1) + (practice expense RVU 1) + (malpractice RVU 1)] = [(work RVU) + (practice expense RVU) + (malpractice RVU)] = [work RVU + practice expense RVU + malpractice RVU] = The national, non-adjusted relative values units of the Medicare Resource-Based Relative Value Scale. This numeric relationship exists because the national, non-adjusted relative value units of the Medicare Resource-Based Relative Value Scale do not need to be geographically adjusted for the nation and its territories as a whole. They need to be geographically adjusted only for localities that are smaller than the nation and its territories as a whole, specifically, for the 89 different Medicare localities that comprise the nation and its territories. In any case, the formula for calculating a maximum allowable fee is yet again the basic formula, where the relative value units are specifically the geographically adjusted relative value units of the Medicare Resource-Based Relative Value Scale and the conversion factor is specifically a conversion factor determined by the individual state. In other words: Maximum allowable fee = 8
FEE SCHEDULE PRIMER Relative value units conversion factor = Geographically adjusted relative value units of the Medicare Resource-Based Relative Value Scale conversion factor = [(Medicare relative value units for physician work geographic practice cost index for physician work) + (Medicare relative value units for practice expense geographic practice cost index for practice expense) + (Medicare relative value units for malpractice expense geographic practice cost index for malpractice expense)] conversion factor = [(work RVU work GPCI) + (practice expense RVU practice expense GPCI) + (malpractice RVU malpractice GPCI) CF. Expressed verbally: The maximum allowable fee is the product of the sum of the geographically adjusted relative value units of the Medicare Resource-Based Relative Value Scale multiplied by a conversion factor. 8 The Medicare Payment Formula in Workers' Compensation The General Medicare Payment Formula Finally, other states adopt more than just the relative value units of the Medicare Resource-Based Relative Value Scale, whether geographically adjusted or nationally nonadjusted, for use in their workers' compensation fee schedules. They adopt, instead, the entire Medicare payment formula, which is made up of the geographically adjusted relative value units of the Medicare Resource-Based Relative Value Scale, the Medicare conversion factor, and for this year, the budget neutrality adjuster. Stated otherwise, the workers' compensation fee schedules of these states are based directly upon the Medicare fee schedules. For the Medicare program, the general payment formula for services performed in a Medicare locality is the product of the geographically adjusted relative value units of the Medicare Resource-Based Relative Value Scale for that Medicare locality multiplied by the Medicare conversion factor. The conversion factor is determined by the Centers for Medicare and Medicaid Services, 9 and is updated annually for inflation, 10 based upon increases or 8. For Michigan, there is a wrinkle. Two Medicare localities comprise the state of Michigan under the federal Medicare program. Each locality has its own set of Geographic Practice Cost Indices. For workers' compensation, Michigan blends both sets of Geographic Practice Cost Indices into a single set of Geographic Practice Cost Indices and applies that single set of Geographic Practice Cost Indices to the entire state. 9. 42 CFR section 414.28. 10. 71 Federal Register No. 231 (December 1, 2006), p. 69628. 9
WORKERS' COMPENSATION FEE SCHEDULES, MAXIMUM ALLOWABLE FEES, AND COMPARATIVE REIMBURSEMENTS decreases in the Medicare Economic Index. 11 $37.8975. 12 The conversion factor for 2007 is equal to In other words, the general payment formula is also just the basic formula, where the relative value units are specifically the geographically adjusted relative value units of the Medicare Resource-Based Relative Value Scale and the conversion factor is specifically the Medicare conversion factor determined by the Centers for Medicare and Medicaid Services. The general payment formula for services performed in a Medicare locality under the Medicare program is as follows: Medicare payment = The geographically adjusted relative value units of the Medicare Resource-Based Relative Value Scale conversion factor = [(Medicare relative value units for physician work geographic practice cost index for physician work) + (Medicare relative value units for practice expense geographic practice cost index for practice expense) + (Medicare relative value units for malpractice expense geographic practice cost index for malpractice expense)] conversion factor = [(work RVU work GPCI) + (practice expense RVU practice expense GPCI) + (malpractice RVU malpractice GPCI)] CF. 13 Expressed verbally: The Medicare payment is the product of the geographically adjusted relative value units of the Medicare Resource-Based Relative Value Scale multiplied by the Medicare conversion factor. The Actual Medicare Payment Formula This year, the general formula is not being used. It has been modified. A budget neutrality factor is being used in the payment formula this year due to a need to meet the budget neutrality provisions of the Social Security Act. 14 Federal budgetary concerns have resulted in an adjustment to the relative value units for physician work. Specifically, the relative value units for physician work are being multiplied by a budget neutrality factor, as follows: Medicare relative value units for physician work budget neutrality factor. 11. 42 CFR section 414.30(a). 12. From the overview of the physician fee schedule on the website of the Centers for Medicare & Medicaid Services, at http://www.cms.hhs.gov/physicianfeesched/ 13. 71 Federal Register No. 231 (December 1, 2006), p. 69628. 14. 71 Federal Register No. 231 (December 1, 2006), p. 69628, 69735-69736. 10
FEE SCHEDULE PRIMER The budget neutrality factor equals 0.8994. 15 It is less than 1. Accordingly, the relative value units for physician work are being adjusted downward this year from what it would have normally have been under the general Medicare payment formula. Specifically, the relative value units for physician work are being reduced 10.06% (since 1-0.8994 = 0.1006). Furthermore, "when applying the 0.8994 work adjustor to the work RVU you must round the product to two decimal places." 16 The actual Medicare payment formula is elaborate, but is nonetheless just the basic formula, where the relative value units are specifically the budget neutrality adjusted and geographically adjusted relative value units of the Medicare Resource-Based Relative Value Scale and where the conversion factor is specifically the Medicare conversion factor determined by the Centers for Medicare and Medicaid Services. The actual formula for services performed in a Medicare locality under the Medicare program for the year 2007 is as follows: Medicare payment = The geographically adjusted relative value units, where the relative value units for physician work are multiplied first by a budget neutrality factor, of the Medicare Resource-Based Relative Value Scale conversion factor = [(Medicare relative value units for physician work budget neutrality factor geographic practice cost index for physician work) + (Medicare relative value units for practice expense geographic practice cost index for practice expense) + (Medicare relative value units for malpractice expense geographic practice cost index for malpractice expense)] conversion factor = [(work RVU BN work GPCI) + (practice expense RVU practice expense GPCI) + (malpractice RVU malpractice GPCI)] CF. 17 Expressed verbally: The Medicare payment is the product of the geographically adjusted relative value units of the Medicare Resource-Based Relative Value Scale, where the relative value units for physician work are first multiplied by a budget neutrality factor before being multiplied by the Geographic Practice Cost Index for physician work, multiplied by the Medicare conversion factor. 15. The website of the Centers for Medicare and Medicaid Services, at http://www.cms.hhs.gov/physicianfeesched/01_overview.asp. 16. Id. 17. 71 Federal Register No. 231 (December 1, 2006), p. 69629. 11
WORKERS' COMPENSATION FEE SCHEDULES, MAXIMUM ALLOWABLE FEES, AND COMPARATIVE REIMBURSEMENTS The Actual Medicare Payment Formula, for Use in Workers' Compensation Finally, states that adopt the Medicare payment formula for use in workers' compensation apply a percentage over 100 to the Medicare payment formula. They multiply the Medicare payment amount by a factor greater than 1 but less than 2. The formula for calculating maximum allowable fees in workers' compensation, like all the other formulas, is ultimately just the basic formula, where the relative value units are specifically the budget neutrality adjusted and geographically adjusted relative value units of the Medicare Resource-Based Relative Value Scale and where the conversion factor is specifically the Medicare conversion factor multiplied by a percentage over 100 determined by the individual state. The maximum allowable fee for states that apply a percentage to the Medicare payment formula is as follows: Workers' compensation maximum allowable fee = Medicare payment percentage over 100 = [(Medicare relative value units for work budget neutrality factor geographic practice cost index for work) + (Medicare relative value units for practice expense geographic practice cost index for practice expense) + (Medicare relative value units for malpractice expense geographic practice cost index for malpractice expense)] conversion factor percentage over 100 = [(work RVU work GPCI) + (practice expense RVU practice expense GPCI) + (malpractice RVU malpractice GPCI)] CF %. Expressed verbally: The maximum allowable fee in workers' compensation is the product of the sum of the geographically adjusted relative value units of the Medicare Resource-Based Relative Value Scale, where the relative value units for physician work are first multiplied by a budget neutrality factor before being multiplied by the Geographic Practice Cost Index for physician work, multiplied by a percentage of the Medicare conversion factor. This then constitutes the basics of fee schedule concepts. The rest of the chapter involves further complexities of the Medicare payment formula. 12
FEE SCHEDULE PRIMER The Relative Value Units for Practice Expense Under the Medicare Resource-Based Relative Value Scale Under the Medicare Resource-Based Relative Value Scale (RBRVS), a CPT code is assigned one figure representing the relative value units for physician work and one figure representing the relative value units for malpractice expense. However, each code is assigned four different figures representing relative value units for practice expense: one for the fully implemented non-facility relative values units for practice expense, a second for the fully implemented facility relative value units for practice expense, a third for the year 2007 (or transitional) non-facility relative value units for practice expense, and a fourth for the year 2007 (or transitional) facility relative value units for practice expense. The reason for this is that relative value units for practice expense are divided into two levels: a facility practice expense and a non-facility practice expense. The facility practice expense relative value units apply to services furnished to patients in a hospital or like setting. 18 The non-facility practice expense relative value units apply to services performed in a physician's office or like setting. 19 The discussion of maximum allowable fees in this report is limited to non-facility fees because of the need to control variables, including the difference between non-facility fees and facility fees. Furthermore, the relative value units for practice expense are divided into two sub-levels: the fully implemented practice expense and the transitional practice expense. This year, the transitional practice expense is also called the year 2007 practice expense. "Fully implemented" and "transitional" refer to the Centers for Medicare and Medicaid Services having recently revised the methodology for determining the relative value units for practice expense. The new methodology is currently being "transitioned" into use. It is scheduled to be "fully implemented" for Medicare in the year 2010. The sub-level that applies this year for Medicare is the transitional practice expense, or the year 2007 transitional practice expense. 20 18. 42 CFR section 414.22 (b)(5)(i)(a) on facility practice expense RVUs provides that: "The lower facility practice expense RVUs apply to services furnished to patients in the hospital, skilled nursing facility, community mental health center, or in an ambulatory surgical center [ASC] when the physician performs procedures on the ASC approved procedures list. (The facility practice expense RVUs for a particular code may not be greater than the non-facility RVUs for the code.)" 19. 42 CFR section 414.22 (b)(5)(i)(b) on non-facility practice expense RVUs provides that: "The higher nonfacility practice expense RVUs apply to services performed in a physician's office, a patient's home, an ASC if the physician is performing a procedure not on the ASC approved procedures list, a nursing facility, or a facility or institution other than a hospital or skilled nursing facility, community mental health center, or ASC performing an ambulatory surgical center approved procedure." 20. August 29, 2007, phone interview with the Centers for Medicaid and Medicare Services, Region IX, Consortium for Financial Management and Fee For Service Operations, based in San Francisco. In a September 10, email follow up, the San Francisco-based office further explained that the four-year transitional period regarding the new methodology for calculating practice expense relative value units is discussed by the Centers for Medicare and Medicaid Services in their final rule with regard to Medicare Part B payment policy, in 71 Federal Register No. 231 (December 1, 2006), at pp. 69629, 69641. 13
WORKERS' COMPENSATION FEE SCHEDULES, MAXIMUM ALLOWABLE FEES, AND COMPARATIVE REIMBURSEMENTS For states that have adopted the Medicare Resource-Based Relative Value Scale for use in workers' compensation, some expressly specify which of the two sublevels of practice expense is adopted. One state, Arkansas, specifies the use of the fully implemented values. Two others, Oregon and Utah, specify the use of the transitional values. The others do not specify the use of one or the other type of practice expense. In performing some calculations in this report, we decided we would use the transitional practice expense, if the state did not specify which practice expense to use, since it is the transitional practice expense that applies this year for Medicare. The Participating Physician's Rate of Payment Under Medicare Finally, the term "participating," as in "participating physician" evidently refers to a physician's participation in the federal Medicare program, in which the fee schedule amount for a "nonparticipating physician" is ninety-five percent of the fee schedule amount for a "participating physician." 21 Stated otherwise, the fee schedule amount for a "participating physician" is the full fee schedule amount. Two states, Hawaii and Texas, also use the term for workers' compensation and specify the use of the "participating" rate. 21. 42 USC section 1395w-4(a)(3); 42 CFR section 414.20(b). 14
Chapter 3 FEE SCHEDULES AND REIMBURSEMENT METHODS OF THE SEVERAL STATES This chapter addresses the first issue of the Resolution, which states as follows: Processes implemented by other jurisdictions or as recommended by experts that try to ensure that state-funded health care payments to worker compensation providers adequately reimburse them for their actual costs; In this chapter, we discuss the reimbursement bases of the fee schedules of the several states. We also discuss the reimbursement methodologies of the states without fee schedules. (See Appendix B for the sources of materials reviewed in this chapter.) Based upon the statutes, administrative rules, fee schedules, and the workers' compensation administrators' websites of the several states, we have organized the several states into the following categories in order to facilitate our discussion of reimbursement methodologies: States without fee schedules; States with fee schedules whose bases are not expressly specified; States with fee schedules based upon charges; States with fee schedules whose source of relative values is the Ingenix publication, Relative Values for Physicians; States with fee schedules whose source of relative values is the Medicare Resource- Based Relative Value Scale; and States with fee schedules whose payment formula is a percentage of the Medicare payment formula. In determining how to classify the states with fee schedules, we were primarily influenced by the language, whether in a statute, administrative rule, or the fee schedule itself, that appeared to provide the most specific information about the bases actually adopted for use in the fee schedules. We note that most of the states that use a fee schedule use only one fee schedule, and are accordingly placed in only one category. However, two of the states, Hawaii and Florida, both use two different types of fee schedules, and are accordingly placed into two different categories. Hawaii is placed with the states with fee schedules based upon charges and the states with fee schedules whose payment formula is a percentage of the Medicare payment formula. Florida is placed with the states with fee schedules whose bases are not specified and the states with fee schedules whose payment formula is a percentage of the Medicare payment formula. 15
WORKERS' COMPENSATION FEE SCHEDULES, MAXIMUM ALLOWABLE FEES, AND COMPARATIVE REIMBURSEMENTS States Without Fee Schedules First, we find that a minority of states do not have fee schedules. States that apparently do not have them are Delaware, Indiana, Iowa, Missouri, New Hampshire, New Jersey, Virginia, and Wisconsin. These eight states generally have statutes that require that charges basically be reasonable, and they define reasonableness as "prevailing charges," "usual and customary fees," or "actual charges." Delaware has no fee schedule. Benefits that are not disputed are payable at the rate billed by the provider, according to the website of the Delaware Department of Labor, Division of Industrial Affairs. However, the Delaware statutes authorize the establishment of a fee schedule and its publication on the Internet when completed. The schedule as envisioned in the statutes sets maximum allowable payments at ninety per cent of the seventy-fifth percentile of actual charges within the geozip where the service is rendered, utilizing information in the employers' and carriers' national databases. Indiana limits the employer's pecuniary liability to such charges that prevail in the same community for a like service to injured persons. Iowa prohibits excessive charges. Missouri prohibits a health care provider from charging a fee greater than the usual and customary fee the provider receives for the same treatment or service when the payor is a private individual or a private health insurance carrier. New Hampshire requires the employer to pay the full amount of the health care provider's bill, unless the employer can show just cause as to why the total amount should not be paid. In other words, the full amount of the bill must be paid, unless it is unreasonable. New Jersey requires that fees be reasonable and based upon the usual fees and charges which prevail in the same community for similar services. Virginia limits the employer's pecuniary liability to such charges as prevail in the same community for similar treatment when such treatment is paid for by the injured person. The website of the Virginia Workers' Compensation Commission confirms that there is no fee schedule in Virginia. Rather, charge schedules agreed to by the carrier and the provider are to be enforced. Wisconsin establishes a formula to determine whether a fee charged by a health care provider is reasonable, according to the website of the Wisconsin Department of Workforce Development. Specifically, Wisconsin statutes require a determination that a fee is reasonable if the fee is at or below the mean fee for such a procedure plus 1.4 standard deviations from the mean, as shown by data from, evidently, the carrier's database. Concomitantly, a fee is determined to be unreasonable if the fee is above the mean fee for such a procedure, plus 1.4 16
FEE SCHEDULES AND REIMBURSEMENT METHODS OF THE SEVERAL STATES standard deviations from that mean, as shown by data in the carrier's database. In other words, it appears that Wisconsin deems a fee to be reasonable if the carrier can show that it falls within a limited range of fees on either side of the mean of fees in their database. States with Fee Schedules Whose Bases are Not Expressly Specified Second, we find that the majority of states have fee schedules. These forty-two states can be divided into states with fee schedules whose bases are specified and states with fee schedules whose bases are not expressly specified. The states with fee schedules whose bases are not expressly specified are Arizona, Florida, Minnesota, Nebraska, North Carolina, North Dakota, and Vermont. Specifically, we were not able to find express language in their statutes, administrative rules, or fee schedules from which we could determine their bases. Arizona requires the industrial commission to fix a schedule of fees to be charged by physicians attending injured employees. Florida specifies that one of its two fee schedules is set at the medical reimbursement level adopted by its three-member panel as of January 1, 2003. Minnesota requires the implementation of a relative value fee schedule. Specifically, it authorizes the adoption by reference of the relative value fee schedule adopted for the federal Medicare program or a relative value fee schedule adopted by other federal or state agencies. However, the fee schedule established under the administrative rules does not identify the source of the relative value units that were adopted, and the Medicare Resource-Based Relative Value Scale is not listed among the documents that were expressly incorporated by reference into the rules. Nebraska authorizes the compensation court to establish schedules of maximum fees. The administrative rules specify that the fee schedule, when used in conjunction with the instruction, ground rules, unit values, and conversion factors set out in the fee schedule, is the fee schedule in workers' compensation cases. The fee schedule specifies that the fee for a particular service is determined by multiplying the listed unit value by the dollar conversion factor. North Carolina requires the adoption of a schedule of maximum fees for medical compensation. The statutes authorize the consideration of any and all reimbursement systems and plans in establishing the fee schedule. It also authorizes the consideration of any and all reimbursement methodologies, including Resource-Based Relative Value Scale payments. However, neither the administrative rules nor the fee schedule identifies which reimbursement methodology was chosen. North Dakota requires that fees must be in accordance with the fee schedules. The administrative rules state that maximum fees are determined in accordance with the most current edition of the fee schedules. The fee schedules set out the fee amounts. 17